Life Insurance and Life Assurance: Is There a Difference?

Life Insurance, Life Assurance
– isn’t it just like saying “to-may-to” or “to-mah-to”, “po-tay-to” or
“po-tah-to”? Actually, people have been using both terms interchangeably so
that there doesn’t seem to be a difference between the two. But there are
actually some important differences, the main ones being the financial roles
these two products play, as well as their price (or premium costs).

Life insurance provides a
lump sum payment if the insured dies within the coverage period. Sometimes, the
policy may also pay upon maturity. If the policy has already expired and the
insured dies after that, there will not be any life insurance payout to the
beneficiaries. There are also some forms of life insurance that pays a
designated amount if the insured survives the policy at the time of maturity.

The purpose for life insurance
is basically protection, providing your family with the income that was lost
upon your death. It may also be used to cover any existing debts (i.e.
mortgages), as well as the costs related to one’s death (burial, funeral,
hospital bills, etc.).

In a way, life assurance is
similar, but it goes one step more by adding an investment component to the
policy. The payout of the life assurance policy is usually equal to or more
than the sum insured. There is an investment component included, depending on
how well the company performed given a certain period. Usually termed as an
annual bonus, the value of the policy is increased every year based on the
company’s investment and growth performance. There are also other policies that
do this not every year but the “bonus” is given at specific times (every five
years, after 10 years, etc.). In addition, there is a terminal bonus at the end
of the policy. Oftentimes, these are counted as “dividends” especially in
participating life insurance policies.

If a person were to die in
between, the payout will be either the guaranteed minimum sum insured or the
accumulated value of the bonuses, whichever is higher. The purpose of life
assurance is protection plus savings, although it can be argued that there are
other investment vehicles that can provide a bigger yield.

Life insurance is considerably
more affordable than life assurance, but life assurance provides the added
benefit of being a “forced savings” vehicle, where, as you continue to pay the
premiums, your money with the insurance company is sure to grow over time.